Russia, Middle East lead declines as oil sell-off clobbers emerging markets

Russian and Middle Eastern markets bore the brunt of a sell-off in emerging equities on Tuesday after oil prices tumbled over 4% the day before, while oil producers’ currencies also suffered.

Brent crude oil futures extended Monday’s losses in early trade, touching a new three-month low of $71.35 a barrel, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers.

“Further to the concerns over Libyan production coming back on stream is talk that the US may push oil from the Strategic Petroleum Reserve on to the market to send prices lower,” Dominick Chirichella, an analyst at the Energy Management Institute, said in a note.

MSCI’s benchmark emerging equities index was down 0.3% for a second day as energy stocks took a pounding and soft Chinese data continued to dog sentiment.

Moscow shares fell 1.7% to a two-week low, while Russian dollar-denominated stocks tumbled almost 2%. Middle Eastern markets also rowed back, with Abu Dhabi down 0.7% and Saudi Arabia down around 0.2%.

Russia’s rouble dipped 0.3% against the dollar, as did neighbouring oil producer Kazakhstan’s tenge .

The sell-off in oil benefited big energy importers such as India, with the rupee gaining 0.3% and Indian stocks up 0.5%.

Concerns over China’s second-quarter economic growth continued to weigh on sentiment. Factory output growth weakened to a two-year low in a worrying sign for investment and exporters amid a trade war with the US.

Muddying the picture, new home prices enjoyed their fastest growth in almost two years in June, presenting a challenge for Chinese policymakers seeking to contain risks in a relatively strong part of the economy.

China said it was still confident of hitting its economic growth target of around 6.5% this year.

However, Hong Kong stocks fell 1.3% while Chinese mainland shares slid 0.6%, with the energy sector down 2%.

Indonesia fell 0.7% and Hungary 0.5%.

Away from the oil producers, currencies were mainly a touch stronger. China’s yuan refrained from testing 6.7 per dollar even though the central bank lowered the official fixing to the weakest since August 9 last year.

The South African rand hovered near Monday’s one-month high. The Turkish lira gained 0.2% after strong year-on-year growth in industrial output.

But Pakistan’s rupee weakened another 1.9% after dropping on Monday in what appeared to be a fourth devaluation by the central bank since early December .

William Jackson, senior emerging market economist at Capital Economics, said investors were also awaiting the first US congressional testimony by Federal Reserve Chairman Jerome Powell later in the day.

“People will be looking for any commentary on the impact of trade tensions on the US economy and whether that’s already weighing on investment, and on the flattening of the yield curve and what that means,” he said.